CHALLENGES OF INTEREST FREE BANKING EXPANSION: THE CASE OF COMMERCIAL BANKS OF ETHIOPIA, WEST ADDIS DISTRICT

Abstract

Currently, the use of interest free banking shows increment as the total number of demanders’ increases from time to time. Thus, the main purpose of this study was to investigate the challenges of interest free banking expansion in commercial banks of Ethiopia, west Addis district. To attain the main intents of the study, the required information were drawn both from primary and secondary sources. Purposive sampling method was used to select 16 banks among 116 banks operating interest free services in the west Addis district and 90 bank’s employees who are directly related to the topic. Five point likert scale structure questionnaire was main means to acquire the primary data. Secondary data were also used to supplement the primary data. In analyzing and interpreting the primary data, quantitative research techniques had been employed. SPSS version 24 and Microsoft Excel Spread Sheet soft wares were used to analyze the quantitative data. Statistical tools like percentages and means were employed and the findings were displayed in tables and figures accordingly. The study revealed that lack of sufficient knowledge and unfavorable towards interest free banking services and products, absence of Sheriah scholars as well as trained employees, absence of market based intermediation and product, and lack of regulatory platform and government support were main impediments affecting the expansion of interest free banking services and products in commercial banks of Ethiopia.However, the majority of the respondents confirmed that Interest free banking has adequate demand or customers, incomplete traditional IFB instruments and smaller economic of scale compared to the conventional banking system.Accordingly, the study recommends that there should be vigorous public enlightenment programmes to create more awareness, and to remove misconception and doubt among the customers and potential customers. Shareholders, bank’s board directors and the management of the bank should accept the concept and be cooperative with interest free banking window of the banking and establish a working Shariah supervisory board for interest free banking operation and strictly comply with its guidance. The government of Ethiopia should take more proactive efforts to promote Interest free banking services in accordance with customers’ satisfaction.The NBE and the Ethiopian government had better to be in a position to laid dawn sound regulatory plate form and support toward the expansion of IFB services and product in accordance with Sheriah Law.